The Balance Sheet is one of the key Financial Statements for any business. This report provides information related to the company’s financial position at a particular point in time. It shows what the business owns (it’s assets) and what it owes to others, known as its liabilities. The bottom of the Balance Sheet has to balance out. For example, Assets must equal Liabilities plus new worth. This accounting balance sheet online small business tutorial is an excellent guide to follow if you are new to understanding the components and preparation of the Balance Sheet.
Asset Description on the Balance Sheet
An asset is an item that has been purchased or received and has monetary value to it. Assets can include cash, product inventory, business machinery, land/building.
Assets can also include money owed to a business, known as it’s Accounts Receivable, patents, copyrights, trademarks and goodwill. Assets are reported on the Balance Sheet in the manner they can be converted to cash.
Liability & Owners Equity Description on the Balance Sheet
Liabilities, specifically current liabilities include accounts payable, accrued expenses, income taxes payable, short term notes payable, and long term debt payable. Current liabilities are amounts owed to a businesses creditors and/or suppliers. They include debts that are due in less than one yr.
The Balance Sheet can be easily understood and prepared, as shown in our tutorial. You may want to check out the “Accounting Book For Dummies“for more information related to understanding the Balance Sheet and preparation of this necessary Financial Statement.
Owners Equity includes Common Stock, Retained Earnings, Capital, and Drawing. Common Stock is the amount of outstanding shares of stock held by investors. This is determined by calculating the value multiplied by the # of shares issued. This is only reported for corporations.
Retained Earnings are the profits and losses accumulated by a business since it was opened. At yr end the profit/loss is totaled and entered into the Retained Earnings acct. Capital is the start up money the owner(s) added to the business and also includes any owner contributions after start up.
Drawing are company’s that are not incorporated and includes money that a owner removes from a business. If there are partners each partner is allocated their own drawing account.
You can also look at the free trial offer of QuickBooks, as it provides some great instructional advice on the Balance Sheet and all of its components.